Unsold units up, building permits down in Pune

PUNE: A private firm employee, Raju Hingmire earns Rs 20,000 per month. He came here from Shirur with a dream to have his own house. Ten years down the line, Raju's search for sweet home is still on.

"I can't live in slums, nor afford a flat. Rates are so high that I can't even think of buying even a one-room-kitchen (1RK). Recently, I contacted a builder constructing on Katraj-Kondhwa Road and the rate he quoted for 1 RK was Rs 23 lakh plus taxes and registration fee. I have no other option than to live in a rented flat," said Raju, adding that his wife was insisting on having their own home in the city.

Over the past few years, the educated class and business people have made the city home following the growth of education centres, manufacturing units, the Information Technology boom and the spurt in BPOs - vastly opening up career opportunities. The population escalation led to a direct growth of the realty sector and property prices rocketed. But the working and lower middle class people like Raju who migrated to the city in search of opportunities have not much of a choice for buying a home.

A study on housing conducted by non-governmental organisation (NGO) Mashal for the Pune Municipal Corporation (PMC) highlighted the lack of affordable houses in the city. It stated there was a shortfall of 2.5 to 3 lakh affordable housing units, which was likely to double in the next few years, considering the rate of migration.

The demand for housing did not reflect in the civic body's construction permission data. The city's realty sector has shown the lowest growth in the 2014-15 fiscal with the PMC issuing just 3,866 construction permissions - lowest in the past 10 years and the trend continues this year as well. The civic body fears that the state's move to hike the development charges by 100% will add to the realty slump.

"The trend is likely to continue this year, especially with the hike in the development charges," said a senior PMC official.

Since 2007, the number of construction permissions given by the PMC had never gone below 4,000 a year. But it went down by nearly 10% in the last fiscal though about 40% of the city's population lives in slums and the middle-class is desperately looking for low-cost houses on the fringes.

City engineer Prashant Waghmare said the demand from software professionals had given a boost to the city's realty market, but it had settled down now. "Also, not many people can afford flats at the current level. This has had a direct impact on the building permissions issued. Initiatives like affordable housing and long-term housing loans can help increase the demand for houses. If the real estate sector focuses on buyers who are not from the high-income groups, the demand for houses can be revived," he said.

The slump in realty is likely to continue this fiscal as the recently presented 'Gera Pune residential realty report' stated that stagnant prices, increasing inventory and many buyers sitting on the fence were adding to the woes of the real estate developers. The report stated that there had been a steep jump in the number of unsold apartments from 66,350 homes a year ago, to a record 90,799 at present. The gross value of the unsold inventory stands at Rs 48,526 crore.

Shantilal Kataria, the president of the Confederation of Real Estate Developers' Associations of India (Credai), Pune, said big tracts of land was available outside the PMC limits and most new projects were coming up in those places. Developers claimed that the 100% hike in the development charges would add to the woes of the developers and consumers.

"The construction industry is already experiencing a slowdown and higher unsold inventory. In fact, the development charges should be reduced in the current market scenario. The investment in land and sanctions has gone up tremendously and because of delays in getting several sanctions, it's a depressing situation for the real estate industry. Moreover, it will encourage illegal construction activities, which in due course of time is regularised by the government because of political and public pressure," said Nitin Kulkarni, the director of Vastushodh Projects.

The Jones Lang Lasalle (JLL) India Residential Realty report presented recently stated, "Unlike in Delhi-NCR, where residential real estate prices saw a massive drop during the last two years, Pune has maintained its status as a safe property investment destination with just a marginal drop in investment return-capital value appreciation."

The state government has a different plan altogether, though. Its order to the municipal corporations regarding the 100% hike in the development charges states that the civic bodies will have to generate revenue for major infrastructure projects and the move will help corporations in this regard. The municipal bodies are reeling from financial crisis after the government decided to abolish octroi, which was a major revenue generation source of civic bodies. The government has also restricted Local Body Tax (LBT) collection, which has paralysed civic finances. The state hopes that the hike in the development charges will help corporation to generate revenue.

At present, the PMC charges 1.5 per cent of the property rate as the development charge. Also, there is a premium charge of Rs 200 per sq ft. With the 100% hike in the development charges, the cost burden will be passed on to consumers (by builders). About 75% of the total revenue the PMC's building permission department generates comes from premium charges. The rest 25% comes from the development charges.

The civic authorities are not confident about the state's move. "The hike in development charges will further add to the realty slump and the objective to generate revenue will not be met," said one of the civic officials.